Question

Assume that on December 1, 2020, Lee Dunbar organizes a sole proprietorship company that will be known as App Solutions. App Solutions will initially perform 2 activities: Application Consulting and Programming.

The following transactions take place during the month of December:

Dec. 1   To start the business, Lee deposits $50,000 into the App Solution’s bank account.

Dec. 1   Web Solutions purchased a small office building for $220,000, paying $20,000 cash, and assuming a mortgage with a bank for the rest.

Dec. 1   Purchased supplies on account for $1,350.

Dec. 2   Received $7,500 cash for Application Consulting to be provided to customers in December.

Dec. 2   Paid a premium of $2,400 on a comprehensive insurance policy covering liability, theft, and fire. The policy covers a 1 year period, to November 30, 2020.

Dec. 2   Paid rent for the month of December, $1,800.

Dec. 3   Received an offer from a local retailer to rent the ground floor of the small office building purchased on Dec. 1^st. App Solutions received $3,600 for three months’ rent beginning December 1^st.

Dec. 4   Purchased computer equipment on account from Executive Supply Co. for $3,600.

Dec. 6   Paid $180 for a newspaper advertisement, to be run immediately.

Dec. 11 Paid creditors $400 for the Dec. 1^st supplies purchase.

Dec. 15 Paid a receptionist and part-time assistant $1,950 each for wages for first half of December.

Dec. 16 Received $3,100 from Programming fees earned for a completed Web site.

Dec. 16 Completed work for prepaid Application Consulting from Dec. 2.

Dec. 20 Paid $1,800 to Executive Supply Co. on the debt owed from the December 4^th transaction.

Dec. 21 Received $650 cash from customers for Application Consulting performed in the last few days.

Dec. 23 Purchased $1,450 of supplies by paying $550 in cash and charging the remainder on account.

Dec. 27 Paid the receptionist and the part-time assistant $1,950 each for wages for second half of December.

Dec. 31 Paid telephone for the month of December, $250.

Dec. 31 Paid $225 electricity bill for December.

Dec. 31 Received $2,870 cash from Application Consulting completed the last few days of December.

Dec. 31 Recognized Programming fees earned by not paid of $1,120 from the second half of December.

Dec. 31 Lee withdrew $3,000 from the company bank account for his own personal use.

Instructions (50 Marks in total):

1. Prepare the Documentation and Chart of Accounts worksheets .
2. Prepare journal entries in the General Journal for App Solutions for December. Do not make any adjustments for the month of December .
3. Post the journal entry amounts to T-accounts .
4. Create an Unadjusted Trial Balance for App Solutions for December 31, 2020 .

Please Note:     Do not apply any adjustments for the month of December 2020.

Use an Excel Spreadsheet file with five worksheets:

            First worksheet:            Documentation

Second worksheet:        Chart of Accounts.

Third worksheet:           General Journal.

Fourth worksheet:        T-Accounts.

Fifth worksheet:            Unadjusted Trial Balance.

Answer 1

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Solution

A. Chart Of Accounts

This is the list of the all accounts used to record financial transaction in the general ledger of an organization.

Chart of Accounts

Account Name	Code	Financial Statement	Group	Sub-Group	Normally
Bank	100	Balance Sheet	Current Assets	Cash and Cash Equivalents	Debit
Cash	101	Balance Sheet	Current Assets	Cash and Cash Equivalents	Debit. But in this problem credit
Office Building	102	Balance Sheet	Long term Assets	Fixed Assets	Debit
Computer Equipment	103	Balance Sheet	Short term Assets	Fixed Assets	Debit
Accounts Receivables	104	Balance Sheet	Current Assets	Accounts Receivables	Debit
Supplies on hand	105	Balance sheet	Current Assets	Inventories	Debit
Capital	300	Balance Sheet	Equity Accounts	Owner’s equity	Credit
Accounts Payable	200	Balance sheet	Current Liabilities	Accounts payable	Credit
Mortgage Payable	202	Balance sheet	Current Liabilities	Loan	Credit
Executive Supply Company	201	Balance sheet	Current Liability	Accounts payable	Credit
Customer Advance Account	202	Balance sheet	Current Liability	Advances from Customers	Credit
Rent Received in advance	203	Income Statement	Current Liability	Rent Received	Credit
Office building Rent Income	401	Income Statement	Revenue	Rental Income	Credit. In this we only received the advance amount. So debit.
Comprehensive Insurance Premium	500	Trading and profit and loss account	Profit and Loss account	Expenses	Debit
Newspaper Advertisement	501	Trading and profit and loss account	Profit and Loss account	Expenses	Debit
Receptionist Wages	502	Trading and profit and loss account	Trading and profit and loss account	Salaries and wages	Debit
Part-time Assistant Wages	503	Trading and profit and loss account	Trading and profit and loss account	Salaries and wages	Debit
Rent	504	Trading and profit and loss account	Profit and Loss account	Expenses	Debit
Service Revenue	400	Trading and profit and loss account	Revenue	Sales & services	Credit
Telephone		Trading and profit and loss account	Profit and Loss account	Expenses	Debit
Electricity		Trading and profit and loss account	Profit and Loss account	Expenses	Debit
Drawings	301	Balance sheet	Equity accounts	Capital accounts(Temporary Account)	Debit. It is deducted from the Capital account

B . Journal

Date	Particulars	L.F	Debit Amount	Credit Amount
Dec.1	Bank Account Dr To Capital Account (Being start the business)		$50,000	$50,000
Dec.1	Office Building Account Dr To Cash Account To Mortgage Payable Account (Being record purchase of office building)		$220,000	$20,000 $200,000
Dec.1	Supplies on hand Account Dr To Accounts Payable Account (Being Supplies purchased on account)		$1350	$1350
Dec.2	Cash Account Dr To Customer Advance Account (Being cash received for application consulting to be provided to customer)		$7,500	$7,500
Dec 2	Comprehensive Insurance Premium Account Dr To Cash Account (Being Comprehensive Insurance premium Paid)		$2,400	$2,400
Dec. 2	Rent Account Dr To Cash Account (Being December Rent paid)		$1,800	$1,800
Dec.3	Office Building Rent Account Dr To Rent received in advance Account (Being rent received in advance for office building ground floor)		$3,600	$3,600
Dec.4	Computer Equipment Account Dr To Executive Supply Co. Account (Being Computer Equipment purchased on account)		$3,600	$3,600
Dec.6	Newspaper Advertisement Account Dr To Cash Account (Being paid for a newspaper advertisement)		$180	$180
Dec.11	Accounts payable Account Dr To Cash Account (Being Paid December 1st supplier purchase)		$400	$400
Dec.15	Receptionist Wages Account Dr Part-time Assistant Wages Account Dr To Cash Account (Being paid wages)		$1,950 $1,950	$3,900
Dec.16	Cash Account Dr To Service Revenue Account (Being Received Programming fees earned)		$3,100	$3,100
Dec.16	Customer Advance Account Dr To Accounts Receivable Account (Being Completed work for Prepaid Application consulting from December 2) Note: In Question mentioned that not take any adjustment entry. This is an adjustment entry for a customer advance account closing. So when preparing trial balance this entry we will not taken for the preparation of Trial balance.		$7,500	$7,500
Dec.20	Executive Supply Co. Account Dr To Cash Account (Being Cash paid to Executive Supply co.)		$1,800	$1,800
Dec.21	Cash Account Dr To Service Revenue Account (Being Cash Received for Application Consulting Performed)		$650	$650
Dec.23	Supplies on Hand                                                                                                                                       Account Dr To Cash Account To Accounts Payable Account (Being Supplies purchased by cash and on account)		$1,450	$550 $900
Dec.27	Receptionist Wages Account Dr Part- time Assistant Wages Account Dr To Cash Account (Being Paid Wages)		$1,950 $1,950	$3,900
Dec.31	Telephone Account Dr To Cash (Being Telephone bill paid)		$250	$250
Dec.31	Electricity Expenses Account Dr To Cash Account (Being Electricity bill paid)		$225	$225
Dec.31	Cash Account Dr To Service Revenue Account (Being cash received for completed the Application consulting services)		$2,870	$2,870
Dec.31	Drawings Account Dr To Bank Account (Being money withdraw by the proprietor for personal use)		$3,000	$3,000
Dec .31	Accounts Receivable Account Dr To sales Revenue Account (Being Programming fees earned by not received)		$1,120	$1,120

Note: Please Check Attachement for T- Accounts and Unadjusted Trail Balance.